Discussion at this roundtable event got underway with the participants citing recent figures indicating that 70% of Italians anticipate they will have to cut down on spending in 2009. The figure was 21% in 2001, 29% in 2002 and 42% in 2004. At a time of international crisis, this growing trend is forcing businesses to rethink their business models.
Recent years saw two patterns of behavior emerge: the first involved consumers demanding better quality (regardless of the price tag) and the second was the development of “low-cost” products whose competitive price was their biggest selling point.
It is this second trend, based on the increased availability of inexpensive goods, that has experienced more growth, partly because low prices are no longer synonymous with poor quality. Indeed, those purchasing low-cost items do not necessarily belong to the less well-off segments of the population (with 15-20% living close to the poverty line). Rather, they are more and more frequently consumers of a different kind, whose choices are driven by ethical, ideological and personal considerations.
In fact, the subjective factors impacting on consumer choice are crucial. The term “low cost – high value” does not necessarily refer to an item’s objective quality, but rather its perceived quality. A commercial product thus becomes attractive not just in terms of its “value for money” but also because of its perceived “value for me”. Hence, a product is judged on the basis of the emotional response it generates in the consumer.
The big foreign chains caught on to this enormous potential customer base some time ago, whilst Italian businesses seem uninterested in this market. Owing perhaps to difficulties in accessing credit or flawed governance, Italian businesses have failed to come up with low-cost international brands in those sectors that have always typified the country (food, clothing and furnishings, in particular). Yet it is precisely in these markets (or at least the latter two) that new foreign brands, despite being disadvantaged by the lack of a long-standing tradition of excellence in these sectors in their own respective countries, have successfully gained a foothold (the reference here being to several well-known Swedish and Spanish brands).
The distinguishing feature of these businesses has been their reduction of costs and their responsiveness to consumer demands. They have managed to maintain the reputation of their brands thanks to the objective quality of their products (with the durability of items reemerging as a key deciding factor) and effective positioning and marketing (by situating their outlets at major shopping centers or focusing firmly on the use of organic materials and eco-sustainability).
The concept of “low cost – high value” does not simply entail a rigorous reduction of production, logistical and distribution costs, which is essential for any business. Rather, developing such an approach requires adopting a certain kind of business model that is not applicable to every sector. Businesses must have an innate ability to interact with this model, though sometimes even that is not enough.
Consumers today are spending less and are less satisfied. The participants acknowledged that once the international crisis is over, businesses will be faced with a customer base that has changed profoundly. It would thus be unfortunate if Italian businesses failed to engage with this increasingly important segment of the market and if they were to overlook an emerging trend of this scale.